Transfer Pricing Audit Applicability in India

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 | Income Tax - Articles
  21 May 2020
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Article explains Section 92 of the Income Tax Act, 1961 related to Computation of
income from international transaction having regard to arm’s length price,  Meaning
of Associated Enterprise under section 92A, Meaning of international transaction
under Section 92B, Audit under the Transfer Pricing under Section 92E and Report
from an accountant to be furnished by persons entering into international transaction
or specified domestic transaction.
Transfer pricing law in India:

Sec-92 of the Computation of income from international transaction having regard to

Income Tax Act, arm’s length price. 
1961 (2) Where in an international transaction or specified domestic transaction,
two or more associated enterprises enter into a mutual agreement or
arrangement for the allocation or apportionment of, or any contribution to,
any cost or expense incurred or to be incurred in connection with a
benefit, service or facility provided or to be provided to any one or more of
such enterprises, the cost or expense allocated or apportioned to, or, as
the case may be, contributed by, any such enterprise shall be determined
having regard to the arm’s length price of such benefit, service or facility,
as the case may be.

Meaning of  (1) For the purposes of this section and sections

Associated 92, 92B, 92C, 92D, 92E and 92F, “associated enterprise”, in relation to another
Enterprise Sec-92A  enterprise, means an enterprise—
(a)    which participates, directly or indirectly, or through one or more
intermediaries, in the management or control or capital of the other
enterprise; or
(b)    in respect of which one or more persons who participate, directly or
indirectly, or through one or more intermediaries, in its management or
control or capital, are the same persons who participate, directly or
indirectly, or through one or more intermediaries, in the management or
control or capital of the other enterprise.
(2) For the purposes of sub-section (1), two enterprises shall be deemed
to be associated enterprises if, at any time during the previous year, —
(a) one enterprise holds, directly or indirectly, shares carrying not less
than twenty-six per cent of the voting power (we covered here) in the
other enterprise; or
(b) any person or enterprise holds, directly or indirectly, shares carrying
not less than twenty-six per cent of the voting power in each of such
enterprises; or
(c) a loan advanced by one enterprise to the other enterprise constitutes
not less than fifty-one per cent of the book value of the total assets of the
other enterprise; or
(d) one enterprise guarantees (we covered here) not less than ten per
cent of the total borrowings of the other enterprise; or
(e) more than half of the board of directors or members of the governing
board, or one or more executive directors or executive members of the
 governing board of one enterprise, are appointed by the other enterprise;
or
(f) more than half of the directors or members of the governing board, or
one or more of the executive directors or members of the governing
board, of each of the two enterprises are appointed by the same person or
persons; or
(g) the manufacture or processing of goods or articles or business carried
out by one enterprise is wholly dependent on the use of know-how,
patents, copyrights, trade-marks, licences, franchises or any other
business or commercial rights of similar nature, or any data,
documentation, drawing or specification relating to any patent, invention,
model, design, secret formula or process, of which the other enterprise is
the owner or in respect of which the other enterprise has exclusive rights;
or
(h) ninety per cent or more of the raw materials and consumables required
for the manufacture or processing of goods or articles carried out by one
enterprise, are supplied by the other enterprise, or by persons specified by
the other enterprise, and the prices and other conditions relating to the
supply are influenced by such other enterprise; or
(i) the goods or articles manufactured or processed by one enterprise, are
sold to the other enterprise or to persons specified by the other enterprise,
and the prices and other conditions relating thereto are influenced by such
other enterprise; or
(j) where one enterprise is controlled by an individual, the other enterprise
is also controlled by such individual or his relative or jointly by such
individual and relative of such individual; or
(k) where one enterprise is controlled by a Hindu undivided family, the
other enterprise is controlled by a member of such Hindu undivided family
or by a relative of a member of such Hindu undivided family or jointly by
such member and his relative; or
(l) where one enterprise is a firm, association of persons or body of
individuals, the other enterprise holds not less than ten per cent interest in
such firm, association of persons or body of individuals; or
(m) there exists between the two enterprises, any relationship of mutual
interest, as may be prescribed.

Meaning of (1) For the purposes of this section and sections 92, 92C, 92D and 92E, “inter-
international national transaction” means a transaction between two or more associated
transaction.  enterprises, either or both of whom are non-residents, in the nature of purchase,
Sec-92B sale or lease of tangible or intangible property, or provision of services, or lending
or borrowing money, or any other transaction having a bearing on the profits,
income, losses or assets of such enterprises, and shall include a mutual agreement
or arrangement between two or more associated enterprises for the allocation or
apportionment of, or any contribution to, any cost or expense incurred or to be
incurred in connection with a benefit, service or facility provided or to be
provided to any one or more of such enterprises.

Audit under the Report from an accountant to be furnished by persons entering into
Transfer international transaction or specified domestic transaction.
Pricing  Sec-92E  Every person who has entered into an international
transaction or specified domestic transaction during a previous year
shall obtain a report from an accountant and furnish such report on or
before the specified date in the prescribed form duly signed and verified in
the prescribed manner by such accountant and setting forth such
particulars as may be prescribed.
Applicability of Transfer Pricing (Sec-92)